Financial Planning for College & Retirement

College for the kids, cozy retirement for mom. How hard is that? Plenty hard — especially when things don’t go as expected. But as one woman learned, there is always plan B.

By Marion Asnes

RULE 3: Don’t give in to 401(k) temptation. My 401(k) is my primary retirement savings investment, so I’m trying to observe another financial planners’ dictum: This account is sacrosanct. Some employers allow you to borrow against your account, and a lot of parents do. Interest rates for such loans tend to be low, and the repayment can be deducted from your paycheck, so it’s almost painless. But this approach is dangerous. If you leave (or lose) your job, you must usually repay the balance of the loan (typically within 30 days) or pay income tax and penalties. Don’t go there.

RULE 4: Hold tight to home equity. It’s tempting to turn to your house as a source of college funds. Home equity loans are cheaper than unsecured debt, and you can deduct interest costs for the first $100,000 you borrow. What could be better?

Here’s what: Owning that home outright when you want to retire, or at least having enough equity to buy a smaller home without a mortgage. After years of a real estate boom, many Americans think of their houses as cash machines. But interest rates are up, and home prices in many places are flat or down. So borrowing against your house isn’t the deal it used to be. Think twice.

RULE 5: Level with your kids. If they’re going to have to work their way through college and take out loans, or live at home and go to a state school, tell them. Be honest. They’ll be more likely to take this news in stride if it doesn’t contradict everything they’ve come to expect from you. And if you have to make a major policy change, the sooner the kids know it, the better.

When our finances took a dive, I told my girls that they needed to think about scholarships and loans, but that I would help repay the loans. My older daughter took up the challenge, applying to a selective school where her tuition would be covered by a full scholarship. When she got in, we both felt as if we’d won the lottery. Our deal now is that I’ll cover room, board, books and expenses for her first year, and she’ll work during the summer to earn more. Sophomore year, she’ll get a part-time job. If necessary, we’ll borrow. It’s heartening to see how resilient Ana and Laura have become, and how Mark and I and the girls have pulled together. We’ve given up some luxuries, but often felt liberated in the process. I do have moments, especially when I’m paying the bills, when anger surges up. But I know we’re going to make it, to college and beyond.